World Building Wednesday: Coin of the Realm- Profit Margin

We already talked about taxation in a previous post, now we switch to whole sale economic activity. Now we switch to the basic elements of economic activity starting with this one:

Profit Margin.

It is the central paradigm that frames all economic activity. And it boils down to the following, that in any economic activity the Gain > Costs. where Gain- Cost= Profit, that is the profit or gain extracted from the activity should exceed the costs of said activity. Now, each element in this equation varies widely from activity to activity as does the actual margin between the two:

Gain: refers of anything of value. It may be literally coin or other things, such as prestige. The item that is extracted or traded may have an inherent value, say shiny rocks that make magic spells more powerful (sorcerer hold magic rock, things go boom) or may be converted into useful form, such as shiny space rock that when refined allow for FTL travel (shiny rock gets liquefied, liquid gets dumped into ship’s fuel tank, ship goes zoom!)

Costs: How much time and energy spent in the activity. Some costs are straight forward, such as workmen pay, tool repair and the like, but others can be hidden or displaced to third parties, such as environmental impact, health issues or work hazards.

Profit: How much is left when after you deduct the costs from the gain. Profits can be reinvested into the process or accumulated, taxed, ect. But it is what sustains and justifies the activity.

Now, some authors simply state that a country is rich because it has plenty of X at hand and leave it a that. Others go into incredible detail about the world’s economy to the point you want to smother yourself (or the author if they are within reach) with a brand new pillow. But it can not be ignored completely. Without the above, the world seems empty and unrealistic outside of hunter/gatherers or utopias. And the latter is, by definition, unrealistic.

Keep the paradigm in mind for when you build your own economic system. We will go into more details next week.